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Facts
The assessee, engaged in operating ships and port services, claimed a deduction under Section 80IA of the Income Tax Act, 1961, for income derived from maintaining and operating port infrastructure. The Assessing Officer denied this, arguing the assessee was a sub-contractor without direct agreements with government bodies, a mandatory condition for Section 80IA eligibility. The CIT(A) allowed the deduction based on previous Tribunal decisions in the assessee's own case for prior assessment years.
Held
The Tribunal set aside the CIT(A)'s order and remanded the matter to the Assessing Officer for fresh adjudication. It found that the CIT(A) had merely followed earlier decisions without sufficient examination of crucial agreements and certificates proving the nature of the assessee's contracts (direct vs. sub-contractor) and whether an infrastructure facility transfer had occurred. The AO is directed to re-examine the relevant terms and conditions of the agreements.
Key Issues
Whether the assessee, acting as a sub-contractor for port operations and maintenance, is eligible for deduction under Section 80IA of the Income Tax Act, 1961, particularly regarding the mandatory requirement of a direct agreement with a government or statutory body and the nature of the infrastructure facility transfer.
Sections Cited
80IA, 80IA(4), 80IB, 194C, 143(3), 33AC
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ DB-A ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Madhusudan Sawdia
Per Vijay Pal Rao, Vice President
1. This appeal filed by the Revenue is directed against the order dated 14/08/2024 of the learned CIT (A)-NFAC Delhi, relating to A.Y.2017-18.
The Revenue has raised the following grounds of appeal:
The learned DR has submitted that the assessee claimed deduction u/s 80IA of the I.T. Act, 1961 in respect of the income earned from maintaining and operating the Port infrastructure under the agreement from the company and not under the agreement with the Central Govt./State Govt./local body or any other statutory bodies for developing or operating & maintaining the port facility. He has pointed out that the assessee is only a work contractor as the company who had an agreement with the Govt. of Andhra Pradesh outsourced the operation & maintenance of the port to another company and the other company has then further outsourced to the assessee. Therefore, the assessee does not satisfy the condition prescribed u/s 80IA(4) of the I.T. Act, 1961. The Assessing Officer has analyzed the relevant facts and circumstances under which the assessee was awarded the works under the contract to operate and maintain Page 2 of 31 the port as a contractor and particularly work contractor. Therefore, in the absence of assessee being an enterprise carrying on the business of developing or operating & maintaining or developing, operating and maintaining any infrastructure facility having entered into an agreement with Central Govt./State Govt./local body or any other statutory bodies, it is not entitled for deduction u/s 80IA(4) of the I.T. Act, 1961. The learned DR has referred to the assessment order and submitted that only in case of transfer of the infrastructure facility by one enterprise to another enterprise and if the same is in accordance with the agreement with the Central Govt./State Govt./local body or any other statutory bodies, as the case may be, the transaction would be entitled for deduction u/s 80IA. The learned DR has submitted that when the assessee is neither developed nor operating and maintaining the Port in accordance with the agreement with Central Govt./State Govt./local body or any other statutory bodies, then carrying out these works under the agreement as a sub-contractor would not be eligible to claim deduction u/s 80IA of the Act. He has relied upon the order of the Assessing Officer. The learned DR has further submitted that the learned CIT (A) has not given the finding on the relevant facts of the case, but simply allowed the claim of the assessee by following the decision of this Tribunal in assessee’s own case.
On the other hand, the learned AR of the assessee has submitted that the issue involved in the appeal filed by the Page 3 of 31 Department is covered by the decisions of this Tribunal in assessee’s own case for the A.Y 2000-01 to 2016-17. Thus, he has supported the impugned order of the learned CIT (A) and submitted that the issue is squarely covered by the earlier decisions of this Tribunal.
In the rejoinder, the learned DR has submitted that the Department has challenged the orders of the Tribunal before the Hon'ble jurisdictional High Court and the appeals for the A.Ys 2000-01, 2006-07 and 2008-09 are pending before the Hon'ble jurisdictional High Court.
We have considered the rival submissions as well as relevant material available on record. The assessee company is engaged in the business of operating ships and port services and filed the return of income for the year under consideration on 27/11/2017 declaring total income of Rs.13,73,10,110/- after claiming deduction u/s 80IA of Rs.1,82,07,416/-. The assessee claimed that the income was derived from maintaining and operating port infrastructure and hence eligible for 100% deduction u/s 80IA of the I.T. Act, 1961. During the course of assessement proceedings, the Assessing Officer issued show cause notice and asked the assessee to furnish the necessary and sufficient details of the basis for claim of deduction u/s 80IA of the Act and also show cause as to why the claim of deduction u/s 80IA should not be disallowed as it was disallowed in the earlier Page 4 of 31 A.Ys. In response to the show cause notice, the assessee filed the reply dated 02/12/2019 reproduced by the Assessing Officer in para 3.2 as under:
Thus, the assessee has reiterated its claim on the strength of the orders of this Tribunal for the A.Y 2001-02. It is also explained by the assessee that, the services rendered by the assessee by virtue of agreement with various port developers constitutes operating and maintenance of ports. The developers also furnished the confirmation letters to the effect that, the Page 5 of 31 various services being rendered by the assessee company are in the nature of operation and maintenance of ports. There is no dispute that the assessee is rendering the service of operating and maintenance of ports under the agreement with the developers and in some cases with the sub-contractors and not under the agreement with the Central Govt./State Govt./local body or any other statutory bodies, then the question arises as to whether the services rendered by the assessee under the agreement with developer as well as with sub-contractor of the developer would satisfy the conditions for claiming the deduction u/s 80IA of the I.T. Act, 1961. For ready reference, the provisions of section 80IA(4) of the Act are reproduced as under: “80IA (1).Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent. of profits and gains derived from such business for ten consecutive assessment years. (2)…… (3.)….. (4) This section applies to- (i)any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining] any infrastructure facility which fulfills all the following conditions, namely:- (a)it is owned by a company registered in Indian or by a consortium of such companies [or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act] (b)[ it has entered into an agreement with the Central Government or a State Government or a local authority or any Page 6 of 31 other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility; (c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995: Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferrer enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government, local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place. Provided further that nothing contained in this section shall apply to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 1st day of April, 2017. Explanation: for the purpose of this clause, “infrastructure facility means- a) road including toll road, a bridge or a rail system;( b) a highway project including housing or other activities being an integral part of the highway project; (c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system; (d) a port, airport, inland waterway][, inland port or navigational channel in the sea x .x. .x. .x. .x. .x. .x. x x.x.x.x.x.x.x.x.x.x.x.xx.”
Thus, sub section (4)(i) of section 80IA prescribes the condition for the eligible assessee to claim deduction u/s 80IA(1) that an enterprise is carrying on business of developing or operating and maintaining or developing, operating and maintaining any infrastructure facility and such enterprise is owned by a company registered in India or by a consortium of such company or by an authority or a Board or a Corporation or any other body established/constituted under the Central or State Acts has entered into an agreement with the Central Govt/State Govt./local authorities or any other statutory body. The term infrastructure facility has been defined in Explanation to section 80IA(4) and as per clause (d) of the Explanation, this includes a Port/Airport/Inland Waterway, Inland Port or navigational channels in sea as part of infrastructure facility. Thus, it is clear from the plain reading of section 80IA(4)(i) of the Act that for claiming deduction u/s 80IA, an enterprise owned by a company or consortium of companies etc., shall be carrying on the business of either developing or operating and maintaining any infrastructural facility (Port) or developing, operating and maintaining any infrastructure facility (Port). Thus, such an enterprise shall either carrying only one business of developing or operating and maintaining the Port or carrying both the activities of developing as well as operating and maintaining the Port would be eligible for deduction u/s 80IA of the Act, if the said enterprises has entered into an agreement with Central/State Govts. or local authorities or any other statutory body for Page 8 of 31 developing or operating and maintaining or both developing as well as operating and maintaining a new infrastructure facility (Port). The condition as per sub-clause (b) of 80IA(4)(1)(i) is a substantial and mandatory condition for claiming the deduction u/s 80IA of the I.T. Act, 1961. The first proviso to section 80IA(4) makes it clear that, in case of any infrastructure facility is transferred on or after 1/4/1999 by an enterprise which developed such infrastructural facility to another enterprise for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central/State Govts. or local authorities or any other statutory bodies, as the case may be, the provisions of this section shall apply to the transferee enterprise, as if it were the enterprise to which clause (i) applies and the transferee enterprise would be eligible for deduction for the unexpired period during which the transferor enterprise would be entitled to the deduction if the transfer had not taken place. Therefore, only in case of transfer of infrastructure facility developed by one enterprise to another enterprise for the purpose of operating and maintaining the infrastructure facility (Port) on its behalf in accordance with the agreement with the Govt., the deduction is available to the transferee enterprise. The Assessing Officer has given relevant facts on this aspect in para 4.9 to 4.11 as under:
The facts recorded by the Assessing Officer have not been disputed by the assessee so far as the agreement entered into by the assessee with M/s. M/s. Cocanada Port Company Pvt. Ltd. dated 16.5.2000, whereas the Govt. of Andhra Pradesh has entered into an agreement with International Sea Port India (P) Ltd for the development and operation of Cocanada Port Company Pvt. Ltd. It is manifest from these facts that the assessee is not even a sub- contractor but has been providing these services under the agreement with the sub-contractor or the contractor Page 10 of 31 who had entered into an agreement with the Govt. of A.P. Though the condition as per sub clause (b) of clause (i) of sub-section (4) is not satisfied being an enterprise entered into an agreement with Central/State Govts. or local authority or other statutory body, however, it is to be seen whether these agreements between the International Sea Port India (P) Ltd and Kakinada Deep Water Port are in the nature of transfer of the infrastructure facility and then again transfer of the said facility in favour of the assessee. The assessee has nowhere claimed that it is a case of transfer of infrastructure facility under these agreements. Therefore, as per provisions of section 80IA of the I.T. Act, 1961, any enterprise, other than the enterprise which has entered into an agreement with the Govt. is not eligible for deduction u/s 80IA except in case of transfer of infrastructure facility already developed by the first enterprise and entered into an agreement with the Govt. or statutory body etc. The Assessing Officer further recorded the facts and his findings in para 4.1 to 11 as under:
Page 11 of 31 Page 12 of 31 Page 13 of 31 Page 14 of 31 Page 15 of 31 Page 16 of 31 Page 17 of 31 Page 18 of 31 Page 19 of 31 Page 20 of 31 Page 21 of 31 Page 22 of 31 Thus, the Assessing Officer has given the finding that the case of the assessee does not fall in the ambit of proviso to section 80IA(4) and consequently the assessee is not entitled for deduction u/s 80IA of the I.T. Act, 1961.
10. The learned CIT (A) has allowed the claim of the assessee in para 6 to 6.1.2 as under:
Page 23 of 31 Page 24 of 31
It is manifest from the above order that the learned CIT (A) has allowed the deduction u/s 80IA by following the orders of this Tribunal in assessee’s own case. This Tribunal in assessee’s own case for the A.Ys 2005-06 to 2007-08 vide order dated 25/01/2012 in 1457/Hyd/2010, 899/Hyd/2010 and 1336/Hyd/2010 has held in paras 7 to 14 as under: “7. We have heard both the parties and perused the material available on record. We have also gone through the earlier order of this Tribunal in the assessee's own case cited supra. It was held by the Tribunal in that order that:
1. 1. It is not necessary that the assessee should have undertaken the entire O & M by the port infrastructure and 2. An agreement with the authority specified in section 801A (4)(i)(b) is not mandatory in view of the provisions of section 80IA(4).
8. This is clear from Para 13 at page 18 of its Tribunal order cited supra wherein it was held as follows: "Although the assessee may not have undertaken the entire operation and maintains of the port infrastructure, the services rendered by it is an integral and inseparable part of operation and Maintenance of the port infrastructure".
9. The authorized representative of assessee relied on the judgement in the case of CIT Vs. ABG Industries Ltd. 322 ITR 323 for the proposition that the benefit u/s 8OIA is available for O & M for even a part of the project. In the case before the Bombay High Court that the assessee had been given the contract for supply, installation, maintenance etc. of the cranes at the port. The High Court held that the structures at the ports are for storage, loading and unloading etc. would qualify as an infrastructural facility in terms of Board circulars. In this case, the Court has suggested that the deduction is available for activities undertaken even part of a facility. Further, the learned authorized representative for the assessee made an argument that in Tribunal in assessee's own case held the requirement of section 80IA(4)(1)(b) is waived by the proviso to section 801A.
Page 25 of 31 This interpretation has also been endorsed by the Bombay High Court in the case of CIT Vs. ABG Industries Ltd. (322 ITR 323) at page 330 : "By the Finance Act 2001 the word 'or' came to be introduced after the word developing', to clarify in effect that the agreement between the enterprise and the authority of the central or state govt. or, as the case may be a local authority or a statutory body may provide for (i) Developing or (ii) Maintaining and operating or (iii) Developing, maintaining and operating a new facility."
With these observations, the Court has clarified that the claim of the assessee even for O & M should be entered into with specified authorities, regardless of the proviso to section 80IA.
11. Further, at Para 5, it was observed by the Tribunal in assessee's own case which reads as follows: "5. On the above facts it was explained by the assessee to the assessing officer that the assessee company had entered into agreements for operation and maintenance of infrastructure facilities viz., ports with the developers thereof, who in turn had entered into agreements with specified authorities for the purpose of development, operation and maintenance of these ports. Further, these ports were required to be transferred or handed over to the specified authorities after the expiry of the period stipulated in the agreements with the respective authorities. The counter parties to the agreements have also confirmed that the services rendered by the assessee company are essential part of the operation and maintenance of the port facilities. Further, under the original agreement between the specified authorities and the developers of the port, the developers had the power to sub contract the operation and maintenance of the port infrastructure as and where necessary. Accordingly, the operation and maintenance services were sub contracted to the assessee company in accordance with the original agreement with the specified authorities. As such, the assessee company's case being fully covered by the proviso to section 80IA(4)(i, it is righteously entitled to deduction u/s 80IA of the Act. "
Page 26 of 31 11.1. In view of the above decision of the Tribunal, we are of the opinion that for these assessment years also the assessee claim u/s 80IA has to be allowed on the same reasons.
With regard to the deduction claimed in respect of Dhej Port, the Tribunal in its order dated 25.11.2005 had held the case fell outside the purview of the provisions of section 80IA (4) since O & M of the infrastructure facility had commenced prior to 1.4.1999. However, the Tribunal allowed the claim of the assessee to be considered u/s 33AC and set aside the matter to the file of assessing officer. Before us the learned AR submitted that the claim for the present year is based on a new contract, since it has been entered after 1.4.1999, which entitles the assessee to be considered under the proviso as had been done for other two ports considered by the Tribunal. If the assessee entered into new agreement in respect of Dhej port and on par with the other two ports, the claim of the assessee u/s. 80IA instead of u/s. 33AC has to be allowed as held by the Tribunal on earlier occasion.
Further the deduction u/s. 801A already granted to the assessee for the earlier assessment years as decided by the Tribunal by the order cited above, being so, we are not in a position to take any contrary view in this matter in view of the order of the Tribunal in the case of Micro Instruments Co. Ltd. Vs. ITO (2008) 12 DTR (Chd) 501 wherein it was held that the assessee's claim for deduction u/s, 8OIB has been allowed in the initial assessment year and also thereafter, claim for such deduction cannot be denied for subsequent years without any justification. The relevant observations of this Tribunal are extracted hereunder: "The assessee initially claimed deduction under s. 801B for the impugned unit in the asst. yr. 2001-02 and the same was allowed. In this assessment year, i.e., 2003-04 the claim of the assessee was in continuation of the claims made in the earlier assessment years for the impugned assessment year falls within the number of assessment years as specified in the section in which the claim is eligible. It is also a pertinent fact position that the claim allowed to the assessee in the initial assessment year of 2001-02 and thereafter in the asst. yr. 2002-03has not been withdrawn. There is no contravention from the Revenue either at the stage of the proceedings before the lower authorities or even before the Tribunal. Thus, factually speaking the claim of the assessee for deduction under s. 801B Stands admitte4d in the initial assessment year and also thereafter up to the assessment year prior to the year under consideration. On the factual matrix, there is no justification for the AO to deny the claim of the assessee Page 27 of 31 for deduction under s. 80IB. The implication of the earlier assessment made for the initial assessment year under s. 143(3) is that the assessee has fulfilled the conditions prescribed in the said section. Thereafter, it is not open for the AO to re-examine the issue all over again and come to a different conclusion in a subsequent year without justifying such departure. In the assessment order, there is no discussion by the assessing officer on this aspect in spite of the fact that the assessee had taken a specific position based on the relief allowed in the past. Further, the claim accepted by the AO in the asst. yr. 2001-02 and thereafter in 2002-03 has not been disturbed. Clearly, in a such a situation, the onus which was on the Revenue has not been discharged. Ln so far as the justification for the claims of exemption/tax reliefs are concerned the onus is on the assessee to establish and justify the claims. So, however, in a situation like the present situation, the AO ought to have justified this departure from the earlier accepted position whereby similar claim has been accepted in the past. It is in the background the onus was on the AO to justify the denial of deduction under s. 80IB in view of the past history. Therefore, in this background there is no justification to uphold the stand of the IT authorities to deny the claim of the assessee for deduction under s. 80IB in relation to the profits and gains. Saurashtra Cement & Chemical Industries Ltd. vs. CIT (1979) 11 CTR (Guj) 139; (1980) 123 ITR 669 (Guj) and CIT vs. Paul Brothers (1995) 216 ITR 548 (Bom) relied on.”
14. In view of the above discussion, we are inclined to confirm the order of the CIT(A) on the issue relating to deduction u/s. 80-IA and accordingly dismiss the Revenue appeals.”
12. In para 10 of the above order, the Tribunal has made a reference to the observation of the Hon'ble Bombay High Court in the case of CIT vs. ABG Industries Ltd (322 ITR 323) wherein it has been clarified that, the claim of the assessee even for operation and maintenance should be entered into with specified authority regardless to first proviso to section 80IA. Therefore, the requirement of an agreement with the specified authorities i.e. Central/State/local authority or statutory body is a condition for claiming deduction. Even otherwise in the said case, a question before the Hon'ble High Court was only regarding the allowability Page 28 of 31 of claim of deduction u/s 80IA for the business activity of developing or maintaining and operating or developing, maintaining and operating and the Hon'ble High Court has held that the assessee would be entitled for deduction even for the business activity of either developing, maintaining or operating the infrastructure facility. The Tribunal has not discussed the terms & conditions of the agreement entered into by the assessee with the main enterprises or with the sub-contractor as to whether it was in the nature of transfer of the infrastructure facility or not. In the subsequent decision, in assessee’s own case, for the A.Y 2008-09, 2011-12 and 2013-13 vide order dated 8/6/2018 in to 440/Hyd/2016, the Tribunal has given finding in Para 12 as under: “12. Considered the rival submissions and perused the material on record. This issue is squarely covered by the decision of the coordinate bench of ITAT in assessee’s own case for AYs 2009-10 and 2010-11 (Revenue’s appeals) in & 1624/Hyd/2014 vide order dated 08/07/2015 wherein the coordinate bench has held as under: “8. As far as AY 2010-11 is concerned, the issue is more or less identical, except, the fact that assessee has claimed deduction u/s 80IA for the first time in respect of Karaikal port being operated by Karaikal Port company Pvt. Ltd. In this regard, assessee has submitted a certificate from the port authority certifying that they have entered into an agreement with assessee for O&M of the port. That being the case, the decision rendered in respect of AY 2009-10 equally applies to the facts of the present case. Accordingly, we do not find any reason to interfere with the order of ld. CIT(A) in allowing assessee’s claim of deduction u/s 80IA. Therefore, upholding the order of ld. CIT(A), we dismiss the grounds raised by department.” Since the assessee has submitted a certificate from the port authority certifying that they have entered into an agreement Page 29 of 31 with the assessee for O&M of the port in AY 2009-10 itself, we set aside the order of CIT(A) and direct the AO to allow deduction u/s 80IA to Karaikal port also. “
13. Thus, the Tribunal has just followed the orders for the A.Y 2010-11 wherein a peculiar fact was taken into consideration about the certificate from the Port Authority certifying that they have entered into an agreement with the assessee for the operating & maintenance of Port. However, this fact does not emerge from the order of the Assessing Officer or the replies filed by the assessee. Therefore, in the absence of the relevant agreement entered into between the assessee and other enterprises or with the Port Authority, if any, it cannot be concluded that the infrastructure facility was transferred to the assessee for the purpose of operating and maintaining the Port. Neither of the parties have produced those relevant agreements before us nor the same are quoted in either of the orders of the Assessing Officer and the learned CIT (A) as well as in the decisions of this Tribunal in assessee’s own case for the earlier A.Ys. Therefore, this is being an issue requires factual as well as legal finding cannot be decided conclusively in the absence of the relevant record particularly the agreements as well as the alleged certificate referred in the earlier orders of the Tribunal. Hence, in the facts and circumstances of the case and in the interest of justice, the impugned order of the learned CIT (A) is set aside and the matter is remanded to the record of the Assessing Officer for fresh adjudication after recording the relevant terms & conditions of the agreement entered into by the assessee for the purpose of Page 30 of 31 operating and maintaining the Ports/infrastructure facility. Needless to say, before passing the fresh order, the assessee shall be given reasonable opportunity of hearing.
In the result, appeal filed by the Revenue is allowed for statistical purposes.